Decentralized finance—”DeFi“—refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum blockchain. From lending and borrowing platforms to stable coins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. Now with over $13.5 billion worth of value locked in Ethereum smart contracts, decentralized finance has emerged as the most active sector in the blockchain space, with a wide range of use cases for individuals, developers, and institutions.
What are Defi coins?
DeFi coins are digital assets that are used to power decentralized finance protocols. These coins are usually issued on Ethereum and provide liquidity to the DeFi ecosystem. DeFi coins have become increasingly popular in recent months as the value of Ethereum has skyrocketed. Investors are drawn to DeFi because of the promise of high returns. However, a high degree of risk is also associated with investing in DeFi protocols.
What are Defi tokens?
DeFi tokens are the native tokens of the various protocols and platforms that make up the DeFi ecosystem. These tokens are used to power the decentralized applications (dApps) that provide users with financial services like lending, borrowing, and trading. Over 178 DeFi protocols live on Ethereum, with more being launched all the time.
Why is Defi Growing Rapidly?
One reason is that DeFi protocols can offer better terms to users than centralized platforms. For example, MakerDAO offers collateralized debt positions (CDPs) with interest rates below those offered by traditional lending platforms like banks. Another reason why DeFi is growing rapidly is that it enables users to do things that were not possible before on centralized platforms.
List of best defi tokens
- Maker (MKR)
- 0x (ZRX)
- Compound (COMP)
How to invest in DeFi tokens and coins
Please do your research as with any investment; it’s important to do your research before investing in any DeFi coin or token. That means understanding the basics of how the protocol works and its associated risks. You can find plenty of resources online to learn more about individual protocols. Consider the tokenomics when considering an investment in any cryptocurrency, it’s important to look at the tokenomics – that is, the economic model underlying the token.
Limitations of DeFi
DeFi applications are still in their early stages of development, and there are several limitations that investors should be aware of before investing in any DeFi coins or tokens. One of the biggest limitations of DeFi is its scalability. Ethereum’s blockchain is currently unable to handle the same volume of transactions as traditional centralized systems like Visa or PayPal.
Every investor should understand DeFi coins and tokens before deciding to invest in the space. You’ll be better equipped to make informed investment decisions by understanding how these digital assets work. With that said, always remember to do your research before investing in any crypto asset.